BBC to spend 27% more on web operation

The BBC Trust has sanctioned a 27% increase in the corporation's online budget, to more than £145m per year, over the next three years. It has also approved director general Mark Thompson's extra £400m savings package which includes pay freezes and will cut the salaries of some of the corporation's biggest stars.

The approved increase is almost 42% below the £52.7m a year the BBC wanted. Regardless, cash-strapped commercial rivals will balk at the ability the BBC has to ratchet upspending in such economic conditions.

Lyons, in a letter to Thompson, concluded that the budget increase did not require a full public value test, concluding that there was a "limited risk of the new investment, which is incremental in existing areas of BBC activity, adding materially to the market impact of BBC Online".

Lyons said that BBC Online had to focus on "high priority" areas such as news, children's, knowledge and better search and navigation to "deliver real value to audiences".

"This is significantly less than BBC management originally asked for," said the BBC Trust. "The trust considers that investment at this reduced level is appropriate. It believes that ongoing robust evaluation of the BBC's impact on online markets will be necessary to ensure that public value is created by the investment."

Overall the BBC Trust said that after "careful consideration" it had approved the corporation's three-year budget, which is designed to deliver savings of £1.9bn by 2012/13. It also approved additional savings, triggered by the economic downturn, totalling £400m that Thompson outlined yesterday.

Measures include a freeze on senior management pay this year with no more than "modest" increases for other staff. No bonuses will be paid to BBC public service staff and the BBC has committed to "significantly reduce" the amount it spends on top stars, such as Jonathan Ross and Chris Moyles, in coming years.

"The trust is mindful that the BBC faces new pressures because of the recession but also has a vital role to play in supporting other parts of the industry through a range of partnership initiatives and by commissioning independent productions," said the BBC Trust. "In the current economic climate, it is more important than ever that the BBC does not push up costs for other broadcasters."

Last summer the BBC Trust's first review of the service licence of bbc.co.uk found that the corporation had a £36m spending blowout in its annual budget. The blowout, described as a "misallocation of general overheads and costs from other budgets" by the BBC, represented a 48% increase on the £74.2m budget.

The review pointed out that only £3.5m of the actual £35.8m was considered "overspend". The BBC is allowed an "upper limit" overspend of 10% above its initial budget.

The BBC Trust's approval of the sizeable funding increase angered commercial competitors and the opposition party.

"The BBC's continued superfunding of its website will simply cement the corporation's dominant position in the market," said a spokesman for ITN.

"At a time when commercial rivals are having to cope with the harshest economic conditions for many years, the BBC seems determined to build a position aimed at destroying the business models of competitors. A budget increase of this size can only heighten concerns that the BBC Trust has no concept of the market impact bbc.co.uk has on commercial news organisations and the threat it poses long term to plurality in the media landscape."

Jeremy Hunt, the shadow culture secretary, criticised the BBC Trust for greenlighting the budget despite the corporation's track record for showing a "lack of control" over expenditure across the division.

"Given that parliament hasn't yet approved the BBC's annual increase in the licence fee the Trust have jumped the gun here," said Hunt. "In particular it is surprising, that despite their own warnings about the lack of control over BBC Online's budget, the Trust has given the green light for them to spend even more money. At the very least we should have had the public value test we were promised. With the Trust itself highlighting the adverse impact an increase in the BBC's budget could have on other broadcasters, the least they could do was to wait for parliament to discuss these issues."

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